Real estate doldrums drive U.S. agents away

09/10/2007

By Katie Hafner
International Herald Tribune
Published: September 7, 2007


NEW YORK: Even when Leon Maldonado was getting his real estate license three years ago, he saw that the red-hot housing market in San Diego was beginning to cool. But he decided to forge ahead.

For a while, optimism kept him going, but after few sales and fewer prospects, Maldonado finally gave up this year.

"When I tell people I got out, everyone understands," said Maldonado, 24, who now collects a steady paycheck from a health-care staffing company. "It's the best decision I ever made."

Many people rushed into residential real estate sales when the booming housing market made a license to sell homes seem like the closest thing to a sure bet at the casino. But now, as the housing market slows to a crawl, those new agents and a good number of more established ones are looking for other employment.

The number of people taking the real estate sales exam in California soared from a little more than 2,000 a month in the late 1990s to a peak of nearly 20,000 in April 2005, according to the California Department of Real Estate. But by July 2007, the number had dropped to 8,000. Similar patterns have been seen in other states.

"It's a perfect storm for real estate agents," said Glenn Kelman, chief executive of Redfin, an online real estate brokerage firm in Seattle. "Not only have unprecedented numbers flocked to the profession, but at the same time you have the mortgage meltdown, the housing bubble bursting and online competitors attacking the commission structure."

Traditional real estate agents, who depend entirely on commissions, "are beset on all sides," Kelman said.

Indeed, membership in the National Association of Realtors, the national trade group and lobbying organization for the sales side of the housing industry, increased by 163,000 in 2005 to almost 1.3 million members, but grew by only 6,000 in the first six months of this year.

When an entry-level middle-class home in major markets on either coast lists for $500,000 and pays out a 6 percent sales commission, it is easy to see how an agent could get excited. In reality, the commission, after it is split with other agents and the brokerage firm, is closer to about 1.5 percent. Even so, sell 10 homes a year, and you are making a fine living.

The problem is that when everyone else jumps into the field, few new agents can hope to sell more than one or two homes a year.

According to the National Association of Realtors, agents earn an average of $49,000 a year.

That is an income Randy Haddadin would have welcomed. Haddadin, 38, moved to Miami Beach in December 2003 from Washington after leaving a job in information technology. He promptly got his real estate license.

Haddadin had a few disadvantages. He was new to the business and new to Miami Beach. Newcomers have an especially difficult time in a business that requires constant networking, most crucially during slowdowns.

At best, Haddadin said, he has broken even. "I didn't really go out and network like I should have," he said. Even if he had exchanged bushels of business cards, he said, there was nothing he could have done about the bad timing. "It wasn't a time for someone not from this area to start," he said.

Haddadin is now weighing his options.

Chang-Tai Hsieh, a professor of economics at the University of California, Berkeley, who has studied the economics of real estate, said he was not surprised to see that agents in South Florida were getting out.

"When the price of housing goes up, you have people jump in, and when the price of housing falls, people jump out," he said.

Nationally, Hsieh said, in areas where housing prices have fallen significantly, like Miami, the number of agents falls commensurately. If a market remains relatively steady, he said, so does the number of agents.

And for those who stay in the business, the 80-20 rule applies.

"Eighty percent of the business is done by 20 percent of the people," said Jay Costello, president of Hill & Company, a brokerage firm in San Francisco.